President Bush released his $2.9 trillion budget proposal for fiscal year 2008 yesterday among much fanfare over the $1,350 Pell Grant increase over the next five years. However, some are concerned about the elimination of some need-based aid programs and additional cuts to lender subsidies used to offset the $19.8 billion needed to increase the Pell Grant - among other selected programs - over the next five years.
Grant Increases
The President's FY 2008 budget proposes raising the maximum Pell Grant award to $4,600 in 2008 and then increase by $200 in every year thereafter until 2012. Maximum Pell Grants for the next five years would grow to the following amounts.
- FY 2008: $4,600
- FY 2009: $4,800
- FY 2010: $5,000
- FY 2011: $5,200
- FY 2012: $5,400
According to a Department of Education press release, "the $4,600 maximum grant awarded to the poorest students would cover nearly 75 percent of tuition and fees at a typical public 4-year college, while the average award of $2,770 would pay for 42 percent of tuition and fees."
"This is the largest Pell Grant increase in thirty years," said Secretary of Education Margaret Spellings at a Department of Education press conference yesterday. Department officials went on to say that increasing the Pell Grant was the best way to get dollars into the hands of the neediest students.
The Congress this month is set to approve a $260 FY '07 Pell Grant increase which raises the maximum award from $4,050 to $4,310 and that increase would take effect this July 1st. This would be the first Pell Grant maximum award increase since 2003 when it was boosted by $50 from $4,000 to $4,050.
The President's budget also proposes to make the following changes in the Pell Grant program:
- Make Pell Grants available year-round at 2- and 4-year institutions
- Limit Pell Grant eligibility to the equivalent of 16 semesters to try to encourage students to complete their educations on time
- Eliminate the Pell Grant award rule (tuition sensitivity), which currently limits the amount of support that students attending low-cost institutions receive
- Exclude from the need analysis formula all savings in Section 529 college savings plans
In addition to the increase in the Pell Grant, the President proposes a 50 percent increase in the Academic Competitiveness Grant (ACG) over the next five years. First-year students would see an increase in ACG funds from $750 to $1,125 and second-year students would see their ACG increase from $1,300 to $1,950. Department officials stated that the new ACG amounts combined with the increases in the Pell Grant would, if received at the maximum levels, cover up to 86 percent of tuition and fees for freshman and all tuition and fees for sophomores at the average 4-year public institution.
The proposed budget also calls for modest increases in the National Science and Mathematics Access to Retain Talent (SMART) Grant program.
Loan Changes Directly Affecting Stafford and Direct Loan PLUS Borrowers
Some of the President's proposals will have a direct effect on borrowers. The budget calls for $2,000 annual loan amount increases to third- and fourth-year students, raising their maximum amounts from $5,500 to $7,500. Apparently, the Administration also would increase aggregate loan limits, but no details are available at this time concerning this proposal.
The PLUS loan interest rate - which is currently higher for borrowers in the Federal Family Education Loan Program than the Federal Direct Loan Program - would be changed so that the DL rate was the same as the FFELP rate set at 8.3 percent under the Administration's budget plan. The current FFELP PLUS rate is now 8.5 percent and the DL PLUS rate is 7.9 percent.
Program Eliminations
To offset some of the costs associated with the increases in some of the student aid programs, the President's budget request recommends program eliminations, some recycled requests from prior-year budget proposals and some new proposals for program eliminations.
One new program elimination recommended by President Bush this year is Federal Supplemental Educational Opportunity Grants (FSEOG) Program. At the Department of Education press conference where many of the details of the President's budget were discussed by Spellings and other Department officials, several people voiced concern at the elimination of the FSEOG program.
"We congratulate you on increasing the Pell Grant," said an audience member, "but I want to voice concern at doing it at the expense of all other need-based aid."
Officials from the Department countered that according to their findings, the FSEOG program has a high administrative cost - it is 250 times more expensive to administer than the Pell Grant program, they said - and was not always delivering funds to the neediest students. In FY '07, $772 million in FSEOG funding allowed 1,290,000 students to receive a FSEOG with an average award of $756.
Among the programs recommended for elimination last year that are again recommended for elimination this year are the Leveraging Educational Assistance Partnership (LEAP), Byrd Honors Scholarships, and the Thurgood Marshall Legal Educational Opportunity Program.
The budget again does not recommend funding for the Perkins Loan Program FCC. Also, according to a budget document, "The 2008 Budget proposes to eliminate the Perkins Loan program and to recall the entire Federal portion of revolving funds held by participating institutions. This proposal is discussed, as part of a broader review of student aid policy proposals, under the Federal Direct Student Loan Program Account. The Perkins Loan account records amounts recalled from Perkins Loan institutions and subsequent repayments on outstanding Perkins Loans, as well as reimbursements of institutional funds to participating schools."
The budget document explains in another section that, "Institutions would retain their own contributions into Perkins Loan revolving funds. Recalling the federal portion of the Perkins Loan funds, less amounts needed to support statutory loan forgiveness benefits, will provide $3.2 billion in savings. These savings would help offset the cost of increases in need-based aid and higher loan limits which are available to eligible students regardless of the institutions they attend."
The budget proposal describes the programs slated for elimination as "duplicative and poorly allocated."
The so-called Section 458 funding in the budget is used in part to administer the Title IV aid programs and it is reduced by $10 million from last year's level.
Programs Level Funded At Last Year's Appropriations Dollar Amounts
The Federal Work-Study program is maintained at current budget levels for FY '08. The Graduate Assistance in Areas of National Need, Javits Fellowships, GEAR-UP, and the TRIO programs all were recommended to be funded at last year's levels. By level-funding the TRIO program, the Administration did not recycle last year's recommendation to eliminate funding for the Talent Search and Upward Bound components of TRIO.
Cuts to Lender Subsidies and Guarantor Reimbursements
The increases in Pell Grant and ACG funds are also being partially offset by a reduction in lender subsidies paid by the Department.
The budget calls for a 50 basis point (.5 percent) decrease in current lender subsidization, from 2.34 to 1.84 on current commercial paper rates, as well as a 50 basis point increase in the one-time loan consolidation fee that lenders pay to the Department based on the total consolidation amount of a consolidation loan.
Sharing the lender's burden, guarantors would see a reduction in lender insurance that they receive from the Department. Currently guarantors receive 97 percent of students' loan balances when filing for federal insurance, but that number would decrease to 95 percent under the proposed budget.
The proposed budget also decreases guarantor default collection payments and changes the way guarantor account maintenance fees are calculated to reach an estimated $3.9 billion in additional savings.
The total savings from all lender and guarantor cuts are estimated at almost $19 billion and are being met with strong opposition in the Federal Family Education Loan (FFEL) community. The Consumers Bankers Association and several others have come out in opposition to the budget, calling the proposal a zero-sum game, repeatedly robbing the largest student aid program to pay for another.
Two More Policy Items
The Administration is asking for $25 million "for a voluntary pilot initiative that will collect and analyze student data to measure outcomes such as graduation rates. This initiative will help ensure accountability and transparency in higher education."
Lastly, according to a budget document, "the Department of Education and the Internal Revenue Service intend to implement a process to verify students' (and their parents')
income, tax, and certain other household information appearing on their income tax return that they provided as part of their application for Federal student aid. This process is part of
ongoing efforts to ensure students receive the correct amount of Federal student aid, and is a key component of the Administration's efforts to reduce erroneous payments government-wide."
Both of these proposals need congressional approval.
Other Resources and News Analysis
Student Aid Spending in the FY 2008 Budget Proposal
| Program |
FY 2006 |
FY 2007 |
Bush 2008 Request |
| Pell Grant |
$13.045 Billion |
$12.607 Billion |
$13.223 Billion |
| Maximum Pell Grant |
$4,050 |
$4,050 |
$4,600 |
| ACG/SMART Grant |
$790 Million |
$850 Million |
$1.18 Billion |
| FSEOG |
$770.9 Million |
$770.9 Million |
- |
| Federal Work Study |
$980.4 Million |
$980.5 Million |
$980.5 Million |
| Perkins Loan Cancellation |
$65.5 Million |
$65.5 Million |
- |
| LEAP |
$65 Million |
$64.5 Million |
- |
| Javits Fellowships |
$9.7 Million |
$9.8 Million |
$9.8 Million |
| GAANN |
$30.1 Million |
$30.1 Million |
$30.1 Million |
| Byrd Honors Scholarship |
$40 Million |
$40 Million |
- |
| Thurgood Marshall Legal Educational Opportunity |
$3 Million |
$3 Million |
- |
By Justin Draeger
NASFAA Assistant Director for Communications
By Larry Zaglaniczny
NASFAA Director for Congressional Relations
Posted 02/06/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
